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Trust But Verify (Gwen Moritz Editor’s Note)

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In the weekly Executive Q&A Feature of this issue, which focuses on accounting issues, Legislative Auditor Roger Norman says, “Accounting issues for private and public entities generally arise from internal control deficiencies, lack of segregation of duties, inadequate or missing supporting documentation or inadequate oversight by entity executives or those in charge of governance.”

As if on cue, federal prosecutors in the Western District of Arkansas offered up Exhibit A: Jimmy Story.

Story, the former finance director and district court clerk for the city of Farmington, waived indictment last week and pleaded guilty to stealing $1.57 million in eight years by falsifying court records and pocketing fines paid. Almost $200,000 a year, on average, from a town of about 7,000 — assuming the FBI discovered the full scope of his crime.

And I think that might be a big if because, according to Story’s plea agreement, he simply pocketed court fines and city fees paid in cash and falsified records so that it appeared that no fines were levied or fees collected.

He was able to do this because, according to his plea agreement, “the defendant was the sole employee responsible for preparing and making deposits, reviewing bank statements and performing reconciliations, entering receipt information in the District Court’s case management system … and posting transactions to the financial accounting system.”

That sound you hear is Roger Norman screaming.

Jimmy Story Embezzlement
Year     Embezzled Income
2009    $270,015.62
2010    $251,905.50
2011    $235,710.38
2012    $228,038.96
2013    $171,542.25
2014    $123,276.53
2015    $121,526.87
2016    $170,005.63
Total    $1,572,022

Jimmy Story was being paid more than $60,000 a year by the city of Farmington. (Part of his legal problem is that he failed to pay taxes on all that embezzled income.) But how much someone is paid has almost nothing to do with how likely he or she is to steal. According to the Association of Certified Fraud Examiners, managers, owners and executives commit more than half of workplace frauds, and their frauds are typically larger than those perpetrated by lower-ranked employees.

As Norman also points out in his Q&A, the recipe for embezzlement has three ingredients, which fraud examiners called the “fraud triangle”: pressure, opportunity and rationalization. I don’t know Jimmy Story — it seems the people who worked with him didn’t know him very well either — so I can’t speculate on what kind of financial pressure he might have felt, nor how he rationalized quadrupling his salary year after year.

But it’s painfully obvious that he had opportunity in spades.

I’m all for efficient government. Also motherhood and apple pie. But there’s a point at which smaller government isn’t better government. I’m weary of the trope about running government like a business, but both honest government and honest business require enough employees to segregate duties and create internal controls.

For what Jimmy Story cost, the people of Farmington could have had four employees. And absent the opportunity, Story might not have been able to rationalize his fraud, saving the taxpayers the further cost of the investigation, prosecution and likely imprisonment.

The fraud triangle will also be on display when the trial of former state Sen. Jon Woods, Ecclesia College President Oren Paris III and their friend Randell G. Shelton Jr. commences. (Originally scheduled to start Monday, the trial was postponed on Friday, and no new date had been scheduled as of Monday morning.)

Giving individual legislators essentially unlimited control over tens of thousands of taxpayer dollars seems, in hindsight, almost as dumb as giving one guy the job of collecting cash and reporting where it went. Yet that’s how the General Improvement Fund worked until it was (again) declared to be a violation of the state constitution.

Woods, Paris and Shelton deny that Woods routed money to Ecclesia and then received kickbacks through Shelton, and federal prosecutors will certainly need to prove their case.

But former state Rep. Micah Neal has already pleaded guilty to doing exactly what Woods, Paris and Shelton are accused of — and doing it under Woods’ guidance. The chances that the GIF wasn’t abused for personal benefit are already zero.

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.
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